Overtime, Not Wage Increases, Drive Income Growth

BySudeep Reddy

Working families’ incomes have grown in recent decades. But the gains came mostly because they worked longer hours than because of wage increases, according to new research by the Brookings Institution‘s Hamilton Project.

Bloomberg News

Longer hours have been the main driver of income growth.

Among two-parent families, median earnings did rise by an inflation-adjusted 23% from 1975 to 2009. But the parents’ combined hours worked increased by 26% during the same period–accounting for most of the income gains.

The median income for two-parent families rose to $70,000 in 2009, for working 3,500 hours a year on average, compared with working about 2,800 hours in 1975 to earn $56,600 (in 2009 dollars).

“If the current patterns of wage decline and wage stagnation for many American families continue, one way they will try to adjust to that is increasing the number of hours worked,” said Michael Greenstone, a MIT economist who directs the Hamilton Project.

Median wages for men in two-parent families, adjusted for inflation, declined 7% over the 35-year period, putting them at $46,400 a year in 2009, the latest year for which such data are available, the research found. Women, meanwhile, entered the labor market and increased the overall number of hours worked by each family — earning enough to more than offset the men’s wage drop.

Having two parents available to work provided a buffer for many families during the recession because it’s rare, even with high unemployment, for both parents to be out of work, Mr. Greenstone said.

Median earnings fell 5% from 2007 to 2009 for a two-parent family, which was less than the 6.6% drop to about $28,000 for the broader civilian population, ages 30-50. Single-parent families fared worse, with their median earnings declining18% to $16,500.

“The long-run decline in wage opportunities has put lots of pressure on families,” Mr. Greenstone said. “People are adjusting, but they’re adjusting in ways that we might not like very much. All of that points away from a vision of the American dream where each generation is doing better than the last.”

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